Good morning, everyone, and welcome to the Marcus Corporation Fourth Quarter Earnings Conference Call. My name is Emily, and I'll be your operator for today. [Operator Instructions]. As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer; and Chad Paris, Chief Financial Officer and Treasurer of the Marcus Corporation. At this time, I'd like to turn the program over to Mr. Paris for his opening remarks. Please go ahead, sir.

Good morning, and welcome to our fiscal 2022 fourth quarter conference call. I need to begin by stating that we plan to make a number of forward-looking statements on our call today, all of which we intend to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act. Our forward-looking statements may generally be identified by our use of words such as we believe, anticipate, expect, or words of similar import. Our forward-looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected. Listeners are cautioned not to place an undue reliance on our forward-looking statements. The risks and uncertainties, which could impact our ability to achieve our expectations identified in our forward-looking statements are included under the heading Forward-Looking Statements in the press release we issued this morning announcing our fiscal 2022 4th quarter results and in the Risk Factors section of our fiscal 2021 annual report on Form 10-K, which you can access on the SEC's website. We will also post all Regulation G disclosures when applicable on our website at marcuscorp.com. The forward-looking statements made during this conference call are only made as of the date of this conference call and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. In addition, we routinely post news releases and other information regarding developments at our company that impact our investors, customers, vendors and other stakeholders. You should look at our website, marcuscorp.com, as an important source of information regarding our company. We also refer you to the disclosures we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-GAAP measure used in evaluating our performance and its limitations. A reconciliation of adjusted…

Thanks, Chad. And good morning, everyone. Throughout 2022, we reported on the incremental progress made in our recovery journey. And as we close out the year and step back to reflect on where we are today compared to where we were a year ago, we've come a long way. Last year at this time, uncertainty was high in both of our businesses. And while we expected significant year-over-year improvement, there are many things we knew we couldn't control. Our focus was on bringing our customers back, managing operations efficiently while facing cost and labor inflation, supply chain disruptions, an inconsistent film slate and executing our strategies in each business. As I look at our performance during fiscal 2022, I'm pleased with our results and how we managed our businesses. We outperformed our competition in both of our businesses throughout the year. Our diversified business strategy allowed us to still make progress overall when the pace of recovery in our 2 businesses was clearly different. Our hotels division returned to pre-pandemic revenue levels by midyear. Now while our theaters division made progress in the year overall, with summertime performance that began to approach 2019 levels, the recovery has been held back at times by the lack of film content. At the end of the year, we had restored the balance sheet to its pre-pandemic state and we have returned our focus to reinvestments in our assets that will drive future outperformance. What a difference a year makes. The themes we saw throughout much of the year continued in the fourth quarter. In hotels, leisure demand remained strong, and we continued to see the return of more group business. In theaters, our customers confirm that they want to see iconic movies like Black Panther, Wakanda Forever and Avatar, The Way Of Water…

[Operator Instructions]. Our first question today comes from Eric Wold with B. Riley.

Greg and Chad. I appreciate tsking my questions. I guess a couple here. I guess, one, when you think about the hotel division, you talked about portfolio management. Obviously, the sale of Skirvin and potential others and kind of what you're doing, looking for additional opportunities. Maybe talk about those opportunities, kind of what you're seeing in the pipeline for potential expansion in that segment. Are there attractive underperforming mismanaged properties out there right now that are at reasonable prices and are sellers' expectations reasonable? And then you kind of have a cap on what you might be willing to put into a single property is that there really isn't a ceiling at this point?

We -- I would say right now, there is -- the market is not moving very much. I think as everybody knows, the debt markets have certainly had their challenges. I saw a stat the other day that CMBS -- not that we're going to take on CMBS [indiscernible] you never know, but the -- that market is pretty much frozen right now. And so I think that there is currently a mismatch between -- I think there's a lot of sellers who are counting on interest rates going down in the second half of the year. I'm not here to opine on where interest rates will be. But I'm just saying that drives probably a mismatch between buyers and sellers. And so nothing right this second is there's not a huge volume of transactions. But that eventually turns around, and there will be opportunities. So we don't have them right. There's not -- we have a pipeline. We're working on it. We always are looking at things. We constantly are evaluating what is out there, and we will continue to do that. As for size, I don't have a limit. I don't think we're about to go do something crazy and gigantic. But I mean, if the deal were amazing, and we saw -- we can bring in partners, we might do -- I wouldn't rule anything out.

Yes, Eric, the only thing I'd add to that is on valuation. We're going to -- we have a process, and we're going to be very disciplined about how we think about acquiring hotels and doing diligence on those properties and where we think we can acquire relative to our cost of capital. And I think right now, there is a bit of a disconnect between buyers and sellers. So we're patient, and we'll continue to find the right opportunities, but we're going to be disciplined about it. On your question on reinvestment and the magnitude of reinvestment, I think you were getting at our existing properties. Look, we think about that in terms of our return on the incremental capital as well as the -- plus the value of the asset today. And so it's not so much a limitation in terms of the quantum of investment as it is, can we hit our hurdle rates for the reinvestment as compared to what we can get to the valuation to sell the asset. And I think the Skirvin is an example where we concluded that the right answer was to divest the asset rather than put more capital into it.

Eric, just one thing on size. Look, at the end of the day, remember, Paramount for us has always been managing our balance sheet appropriately. And so that's why I said if it was in partnership with something because you know that's going to be a limiter just by itself because the one promise I can make is we are not about to stretch our balance sheet to do a giant acquisition.

That's helpful. On the theater side, maybe you can give an update kind of where you are with the staffing environment. With the current flow of films and kind of expected flow this year, are you at optimal staffing levels for where you want to be? And if staffing -- or sorry, if attendance does return to pre-pandemic levels in the coming years, as you look forward to that point whatever it may be, would you anticipate having the same number of employees as you had back then, let's say, in '19? Or would that number be lower, but with the wage inflation, higher kind of making the overall cost comparable?

Yes. Great question. So let me point out a couple of things. So this quarter, our labor cost was now starting to get back to the staffing levels that we'd want to have whereas if you compare it to where we were in 2021, and we shared with you that we could not hire enough folks in the fourth quarter of '21 to meet the volume that we had going through the theaters. So we had a short-term benefit in our P&L because of that. And we got through it, but we want our NPS scores, and we want our customer experience to be at a higher level than we were a year ago, and I'm happy to share that we're making great progress in that area and getting back to the staffing levels that we think make sense. The labor market has loosened a bit over the course of the second half of 2022. And we still have some pockets where we aren't filling some positions, but generally, we feel like we can get pretty close to meeting the demand. Now I think your other question is the cost of labor in the P&L is that going to be greater than it was in 2019. And given the wage inflation that we've seen. And so what we're trying to solve for here is taking labor out of the model. And that is going to get executed through an increased use in technology and really running our facilities with fewer people than we would have before. And I'd say that the same thing is true in our hotels business. We know and we are managing to operate these properties with a different staffing model than we did before the pandemic. So will it ultimately be neutral to margins. We're still trying to work through that. It's a challenge, but we believe that we've done well on changing the staffing model, and we still have some opportunity in front of us.

Perfect. Helpful. I'll leave it there and take the rest offline.

Our next question comes from Jim Goss with Barrington Research.

Greg, I'd like to go over a little more on the sort of the new normal in film releases. As you mentioned, it has been choppy and coming back. I'm wondering if there -- you'd think there would be -- tended to be fewer midsized films that sometimes go direct to streaming that may be offset by some streaming network films that might get theatrical releases. Has this started to occur? And the overall size in comparison to the slate -- and then maybe you can talk about a couple of the streamers and how they might view the world.

Well, you get me on my soap box, Jim. -- wound me up -- wind me up early. I believe that -- and I know that for us to have a healthy film ecosystem, we are going to need midsized films and smaller films to be a part of that mix more than in the last few years for sure. I don't know where it gets back to where it was. But I can tell you we saw -- we're seeing some real positive signs in what they're releasing and the performance of those smaller films because like A Man Called Otto, $100 million. What a great gross that is for a midsized film, and it was fun. It was -- we don't have a list of movies so far this year that have been out. I've seen them all, and they aren't huge -- M3GAN, not a huge movie, but fun and good under 2 hours. I saw Plain Missing in the last month. really nice fun, short, midsized films that did well and performed nicely for us. They are -- I keep saying, you can't just feed us dinner. We need lunch, and we need breakfast, too. They have a rounded nutritional diet and because those films help to build -- we talk about momentum in theatrical being a habitual thing and that we have to rehabitualize the moviegoer because what happens is you go to that move -- it's not too complicated. You go to the movie. And you start watching the previews for the next movie. And you say, "Oh, I'd like to see that." And hopefully, you enjoyed the movie you saw and you said, "Well, this is fun. Hey, let's come back and see this next movie." When we have -- and since you…

Well we might all agree philosophically with everything you're saying, it does seem like the new normal is not going to be the old normal and that there will be variances. And I'm just wondering what -- how high is up and what those differences might be because we've had several years, it doesn't seem like we're getting back to where we were exactly and maybe we don't need to, at least we're improving from this level. But I'm just always looking at those differences. And in fact, if you mentioned Amazon with the AIR film. And they've got their feature films, they have MGM. They have Amazon Prime. They have a sort of an interesting mix that might prod them to do certain things. And Warner Brothers and Paramount are undergoing different challenges, too. So I don't know, are there any more specific thoughts you might have and the approaches from those?

I don't want to be argumented if necessarily, Jim, but I'm not ready to throw the towel in yet on what the future is going to look like. As because as you pointed out all of a sudden, Amazon is going to release AIR theatrically. I don't know what -- I can't speak for the streamers. So I don't -- look, as you just pointed out, we have a good cash flowing business right now. But I don't know what -- all of a sudden, the tone is changing in a way I haven't heard in a while. You got to remember that -- for the last number of years, frankly, Wall Street was saying, be like that one company that gets $1,200 a subscriber, which they don't anymore on their stock value. And don't worry about anything else. Don't worry about maximizing the value of your content, don't worry about your profitability. Don't -- just get -- forget any other revenue stream, just get that one subscribing revenue stream. And that tone has changed. But that takes time to work through the system. Now I'm not here saying that it's going to go back to where it was and I'm going to manage to whatever comes our way. But I'm also not going to throw in the towel because there are a lot of content providers who make content who haven't been playing theatrically. And they are starting to see the benefits of that sequential release and not just for the larger movies. So I don't know what it is. I wish I could tell you [indiscernible] . I just don't -- I don't want to say that I know that it's not going to be there, I don't know that it's going to be there. But I will say if the trend is your friend, it feels better than it did before.

Yes. I think, Jim, that's the key compared to where we stood back in November and where we were thinking the number of wide releases was going to be for 2023. At the top end of that range in November, we were thinking this was more like a 95 is the top end. And now there's been a number of positive developments and content coming our way that have dropped into the schedule during '23, some of which are coming from streamers and appear to have a legitimate marketing promotion associated with them. So there does seem to be a change in tone in the nature of the discussion. Some of them seem to be getting it and realizing that there's a lot of opportunity with box office and theatrical that will be incremental to their total returns on content. And I think we're very encouraged by that. So where it ultimately stabilizes, we'll see over the next couple of years here. We're still working through some supply chain issues that have been disruptive, and I think there will still be some impact of that, that doesn't get you to a stabilized number in 2023. So we'll see where '24 and '25 end up, but -- this is not the stabilized number.

Okay. One last one. The loyalty program, I haven't talked about that much lately. What is the size role in the usage right now? And you mentioned Marcus Passport, perhaps that ties into it somehow.

We are over -- what is it over 4 million now?

Over 5.

Over 5 million in our loyalty program. It's -- our usage is -- I think a little -- we're around 50% of our transactions are loyalty transactions. I'm speaking from memory, Jim and frankly, Chad's looking around the office to make sure that I'm not making a mistake. But look, it's -- we're pleased with the program. It's a good program. We have a lot -- we have room to improve it. There's absolutely no doubt -- we have room to -- I've said and I pushed our team that that's our ability to build a relationship with our customer. And our customers -- it's the real interesting thing about the movie business. Our customers are very passionate. I've noted that they'll actually tattoo our product onto themselves, which sounds crazy, but there are people walking around with superman tattoos and Yoda tattoos. So when they're actually going to permanently put our product on to themselves, we think that's a really good thing, and that's an opportunity for us that we really need to get better at capitalizing on. But it is our way of reaching out to the customer and building our business. So we're pleased with so far with what we've got. Chad, do you want to...

Yes. Just to put some numbers to it, Jim, we are at 5.1 million members enrolled in the program today and our percentage of transactions of loyalty members is growing 45% of all of our box office transactions are loyalty members. and 40% of our total transactions, including food and beverage were from loyalty members. And so as Greg said, we're continuing to do things to incentivize use of loyalty and create more incentive for customers to frequently come to the movies, which is really what that program is driving at.

And then it's all -- it's about frequency, as I said, and building that relationship. But it's twofold. The -- and a stronger relationship will ultimately drive frequency, which is the end game. As the passport, that's a really cool program that our team came up with, I love what they did. It is -- it's a way of marketing a smaller set of movies as a -- almost like a subscription, I don't want to call it a subscription necessarily. But when you buy the Oscar Passport, you're paying for us, you're paying $40 to see all the Oscar movies if you want to. Now you may not be seeing all the Oscar movies. And so what your price per movie is will depend on what your own personal usage. But we're -- instead of trying to market every individual movie, we're marketing all the best pictures in one thing. And I foresee a day when you can go on our website and you're going to be able to pick from your passport. Do you want to go see a bunch of kids movies in our kids dream series. Do you want to see the best picture series. Do you want to see the comedy series. Do you want to see the what's it called, the concert series, whatever it might be, whatever our creativity hopefully has no bounds. And that you'll buy -- we'll be able to market that in a different way, and it will be a bulk purchase and again, helps build frequency and the relationship with our customers.

All right. And by the way, Greg, which logo do you choose for your tattoo.

Some things are on a need-to-know basis, Jim.

Thank you.

[Operator Instructions]. Our next question comes from Chris Potter of Northern Border Investments.

You guys have done a great job improving the balance sheet over the last couple of years, specifically bringing the debt level down and it's easy to envision a scenario where you might be able to settle the convertible with cash rather than shares, which, by the way, I think would be very good for the stock price. Can you guys talk about how you think about that issue?

Sure. On the convertible, we've got a bit of runway here left on the maturity. It's out there till 2025. And given where the stock is trading today and the cap call transaction that we put in as a hedge on that instrument, candidly, it's not a urgent problem and given where the debt markets are today, it would -- so long as you keep the dilution within the bounds of our capped call, the coupon on that debt isn't -- it would be more risk expensive, frankly, to replace it. So we will look if there are opportunities to do something before maturity that make economic sense, we certainly would look at it. But that isn't a priority.

[Operator Instructions]. At this time, it appears there are no further questions. I'd like to turn the call back to Mr. Paris for any additional or closing comments.

All right. Well, we would like to thank you once again for joining us today, and we look forward to talking to you not that long from now in early May when we release our first quarter fiscal 2023 results. Until then, thank you, and have a good day.

That concludes today's call. You may now disconnect your lines.